As of today, Arena Pharmaceuticals Inc's weighted average cost of capital is 10.96%. Arena Pharmaceuticals Inc's ROIC % is 657.56% (calculated using TTM income statement data).
Arena Pharmaceuticals Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

* Premium members only.

Arena Pharmaceuticals Inc Annual Data

Dec09

Dec10

Dec11

Dec12

Dec13

Dec14

Dec15

Dec16

Dec17

Dec18

WACC %

-20.81

6.84

11.82

15.96

14.88

Arena Pharmaceuticals Inc Quarterly Data

Jun14

Sep14

Dec14

Mar15

Jun15

Sep15

Dec15

Mar16

Jun16

Sep16

Dec16

Mar17

Jun17

Sep17

Dec17

Mar18

Jun18

Sep18

Dec18

Mar19

WACC %

17.46

19.36

13.67

14.88

11.68

Competitive Comparison

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap.

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.

WACC

=

E

/

(E + D)

*

Cost of Equity

+

D

/

(E + D)

*

Cost of Debt

*

(1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap (M)". As of today, Arena Pharmaceuticals Inc's market capitalization (E) is $2647.537 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Current Portion of Long-Term Debt and Long-Term Debt & Capital Lease Obligation together. As of Mar. 2019, Arena Pharmaceuticals Inc's latest two-year average Current Portion of Long-Term Debt was $3.6415 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $53.587 Mil. The total Book Value of Debt (D) is $57.2285 Mil.
a) weight of equity = E / (E + D) = 2647.537 / (2647.537 + 57.2285) = 0.9788
b) weight of debt = D / (E + D) = 57.2285 / (2647.537} + 57.2285) = 0.0212

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2018, Arena Pharmaceuticals Inc's interest expense (positive number) was $5.695 Mil. Its total Book Value of Debt (D) is $57.2285 Mil.
Cost of Debt = 5.695 / 57.2285 = 9.9513%.

4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation.
The latest Two-year Average Tax Rate is39.71%.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, Arena Pharmaceuticals Inc's weighted average cost of capital is 10.96%. Arena Pharmaceuticals Inc's ROIC % is 657.56% (calculated using TTM income statement data).
Arena Pharmaceuticals Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.

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